ADDIS ABABA UNIVERSITY

College of Business and Economics

Group Term Paper Assignment

On

“The Contribution of line-item budgeting to control public expenditure”

 Abel
 Azmera
 Fithawi
 Mesafint
 Selamwit

Submitted to: Abebe Yitayew (Dr.)

Jan. 2022

INTRODUCTION
A line-item budget is a traditional budget format that uses object classification by broad
categories of present proposed expenditures. Primarily used for financial control, the categories
in the line-item budget consist of a list of expenditures that are logical, and contain items such as
personnel, travel, equipment, or supplies. A line-item budget provides Simple but limited
information beyond the cost of specific categories of express expenditures or appropriations to
ensure accuracy and control. In the household budget, an example of a line item would be the
amount of household income spent on clothing, but the list of expenditures would be the list
expenditure would not detail the particular items purchased for each family member.

When governments solely rely on the line-item format, the budgetary process is said to be best
characterized as “incremental” Because it typically calls from the last completed fiscal year, the
current year, and the forthcoming fiscal year, including funds, the organization is and objects of
expenditure! Although budget battles appear to be controversial matters the outcome is seldom
more than the prior year's bagel using this process. This often leads to a gradual increase in
expenditures and can lead to mounting debt and deficits over time. Despite criticisms of the
incremental nature of budgeting via the line stem process, this method of Budgeting does provide
a sense of stability from year to year. The stability of the line-item budgetary process is valued
by lawmakers and administrators because they often rely on cm Budgetary projections for
political decision-making.

According to Wildavsky’s theory of incrementalism, budgetary decision-making is driven by.

Department heads. Therefore, each year only the increments from an already existing and well-
defined base are examined by policymakers. From this point of view, governmental budgeting is
considered to be an annually repeated process that results in the Bargaining Between individuals
who know one another through budgetary activities. This theory most adequately describes what
happens when the government uses a line-item budget. but does not accurately describe other
methods of budgeting used in government, for example, the theory of incrementalism could not
take into account or explain entitlement programs Such as social security, which over time
squeezed out other Categories of expenditures in the federal budget. Norcould theory of
increments accounts for top-down budgeting processes when bureaus and departments were
bypassed or when cutbacks took place!
 OBJECT OF EXPENDITURES

Technically, a budget following line-item format is a detailed financial plan developed according
to governmental accounting based on the object of expenditure classifications. Objects of
expenditures (or objects of expense) are detailed categories of goods and services that are
purchased by an organization such as supplies, travel, equipment, or personnel services. An
each-object-expenditure classification is a form of accounting that attempts to limit expenditures
by the organization. Normally objects of expenditures are divided by departments or divisions
within the organization that serve as appropriation guides to personnel

USE OF LINE-ITEM BUDGETS.

The line-item edger format is especially useful for purpose of financial control and is the
simplest budget format to link to government accounting systems. The format of the line-item
budget is straightforward, readable to citizens, and can easily be converted to accounting
systems, for these reasons this form of budgeting is now common across public and nonprofit
organizations.

The first widespread use in the United States came about as part of the reform movement that
was aimed at cleaning up municipal corruption in the early part of the twenty century and the
move to make government more efficient like business, The focus of the reform movement was
on gaining financial control, and the budget reform preferred was the line-item Format.
…………………………………………………………………………………………………….

The line-item budget typically is used when control is the budget’s main function. It also
is the budget type most cities and towns use. In a line-item budget, expenditures are listed under
a large subject area – a fund; then broken down by a function or purpose, such as a department;
then by an object, for example, office supplies or utilities. Utilities can then be further broken
down into items such as gas, water, and electricity. Imagine a tree, where you start at the trunk,
then split into branches, then spread into leaves. The trunk is the General Fund, the large
branches are the departments, and the leaves are all the items that will be purchased within each
department. The more detailed the line items, the more control the governing body or manager
has over expenditures.

According to Budgeting: A Guide for Local Governments:

"… the line-item budget originated in the late nineteenth century in response to the excesses of
the political machines that controlled many state and local governments: this format was ideally
suited to shifting power away from political bosses and toward legislative bodies, which were
more accountable to voters."

The downside to line-item budgets is they provide no information about the activities or
functions of a program or department and how efficiently they operate. The focus is strictly on
what is spent.

Thank You!